Seasonality, the
tendency for prices to consistently move in the same direction at
particular times in the calendar year, is always fascinating. While
it is intuitive for commodities dominated by
orbital-mechanics-driven annual patterns, such as natural-gas demand
surging in the cold winters, seasonality also exists in commodities
without clear calendar connections.

Over the years
Iíve done a lot of work on
gold seasonality.
Though this metal is mined year round regardless of the seasons, it
still exhibits strong seasonality. This is driven by large
fluctuations in investment demand tied to the calendar, including
festival seasons in Asia, Christmas season in the West, and
financial-year-end cash-surplus buying. The calendar year really
matters for gold.

Each time I penned
a new essay on gold seasonality, I received many e-mails wondering
ďwhat about silver?Ē Iíve been curious too, but my technical
research showing
silver following gold is crystal clear. Goldís action drives
psychology in the entire precious-metals realm, so silver traders
buy silver when gold is strong and sell silver when gold is weak.
Silverís primary driver is gold.

Across all trading
days since silverís secular bull was stealthily born in November
2001, it has had a correlation r-square with gold of 89%.
Statistically at least, 89% of silverís day-to-day price action
throughout its entire bull is directly explainable by goldís
own! If you want to trade silver successfully, there is simply no
arguing with the fact that you have to watch gold for cues on buy
and sell timing.

Since silver so
closely follows gold, shouldnít silver seasonality mirror goldís
own? Iíve been wanting to test this assumption for some time, but
with all the chaos in the financial markets over the last couple of
years it got sent to the backburner. But this week as I pondered
goldís seasonally-bullish time of the year we are entering, I
started to wonder about silver again.

Conventional
futures-based seasonal analysis examines super-long periods of time
often running 30+ years. But such long spans encompass bulls and
bears alike, and prices behave very differently in bulls and bears.
Iím more interested in how silver has behaved seasonally in this
secular bull, which can aid our current trading. So this essayís
silver bull seasonal analysis begins in 2000.

These seasonality
explorations are not trivial undertakings. The spreadsheet
underlying the charts in this essay has over 7k formulas, divided
among nearly 140 specific sets. For comparability, I used the exact
same methodology
from my gold-seasonality research. To start, silver prices are
indexed within each individual calendar year and again within each
individual calendar month.

This indexing is
essential so rising silver prices donít skew the results. A $0.25
rally back in 2002 when silver averaged around $4.50 is far more
significant than this same increase today. Indexing silver to a
common base of 100 ensures that percentage moves are perfectly
comparable across time. These annual and monthly silver indexes are
then averaged, yielding the pair of charts in this essay.

The average of the
annually-indexed silver price is rendered in blue, with the actual
data points enlarged since this underlying data is much more
important than the connecting lines. The standard deviation is
shown in yellow, with the small inset chart establishing its full
range. The tighter the standard deviation at any point, the less
dispersed the underlying data is and the more predictive value it
likely has.

Like gold, silver
has exhibited very clear seasonality within its secular bull. If
silverís bull-market rise was distributed randomly throughout the
calendar years, this chart wouldnít be so volatile. This white
metal definitely has stronger and weaker times of the year, which is
very useful for silver investors and speculators to know. Even
though seasonality is almost never a primary driver, it creates
tailwinds and headwinds that can amplify or retard the primary
sentiment-driven trends.

Seasonally the
silver year starts with its first strong rally. While it actually
launches in mid-December, the great majority of this rally runs
between January and early April. On average over the last decade,
silver has surged 13.5% higher during this span. This winter rally
is actually silverís strongest seasonal time of the year. Obviously
today we are early on in this bullish span, which is good news for
silver traders.

After this winter
rally peaks in early April, silver tends to grind lower into early
September. While shorter rallies in May and July enliven this
drifting span, the prevailing trend clearly remains down. This is
the infamous summer
doldrums, the worst time of year to own precious metals. The
old stock-market adage ďSell in May and Go AwayĒ certainly applies
to silver. The universal appetite for speculation tends to wane in
the summer, so as one of the worldís most speculative commodities
silver takes a hit.

But weak prices
create an excellent buying opportunity late in summer. Between
mid-August and early September, few traders are excited about silver
after its multi-month drift lower. This leads to the yearís best
seasonal entry point in silver and silver stocks, so investors and
speculators should capitalize on it. Back in August 2009, when
silver was trading under $14, I wrote about the coming
big autumn silver
rally.

And silver stocks
are even better buys than silver in this dreary late-summer
timeframe. Just like the silver price tends to amplify gold action,
silver stocks tend to amplify silver action. So when traders arenít
excited about silver after its usual summer drift lower, the silver
stocks are often sold to deeper discounts than the prevailing silver
prices warrant. So instead of forgetting about silver late each
summer like most traders, capitalize on their apathy by aggressively
buying new silver-related investments and speculations.

Then once the busy
autumn trading season resumes, it doesnít take long for the zeal for
speculation to return and silver to catch a bid. Between early
September and early December, silver tends to rally 11.4% higher on
average. This second big seasonal rally isnít much smaller than the
winter one, so it is well worth riding. After it matures, there is
a quick early-December pullback that soon yields to the powerful
winter rally.

If you want to
integrate the tailwinds and headwinds of silver seasonality into
your silver trading, this chart is your road map. Late summer is
the best time to add new silver-related investments and
speculations. A secondary but inferior buying opportunity exists
between the autumn and winter rallies in mid-December. If you want
to sell silver-related speculations, your best bet is early April or
late May. Today in
Zeal Intelligence
we have several big 100%+ gains in silver stocks that I expect to
realize at much higher prices later this spring.

As mentioned
earlier, the reason I hadnít gotten around to crunching
silver-specific seasonality sooner was my assumption that it would
merely mirror goldís. While this proved correct strategically,
tactically there are more differences than I expected. If you pull
up the recent
gold seasonal chart from my latest essay on it, and compare it
to silverís side-by-side, the results are definitely illuminating.

Like gold, silver
tends to rally strongly in January and February. But while gold
retreats modestly in March, silver simply consolidates high. Spring
is always an exciting time of the year for speculators, and optimism
grows with the lengthening daylight and warming temperatures. Maybe
this helps explain silverís March resiliency relative to gold, and
maybe not. But it definitely exists statistically regardless of the
reason.

In April and May
gold starts rallying again, but in its weakest big seasonal rally of
the year. Silver initially leaps up much more quickly than gold in
early April, but by the middle of the month the probability of
silver selling grows. Realize this seasonal April dip is a bit
skewed. You long-time silver traders may remember silverís
near-crash event
in April 2004, a brutal episode. Driven by a sharp 7.6% correction
in gold, silver plummeted 29.3% in just over 3 weeks that
month. It was crazy.

Since this
seasonal composite is built from the average of annual silver
indexings, exceptionally large and atypical swings can influence
this entire dataset for many years after the events. Thankfully the
averaging mitigates their impact more and more as this bull marches
higher, but they are still important to be aware of. The greatest
example, of course, was the 2008 stock panicís devastating impact on
silver.

So despite this
chart, it is probably more useful to consider silverís strong
seasonality running into May rather than April. As the next chart
which indexes each month individually shows, May is actually the 4th
best month of the year for silver on average. And a May end to
silverís biggest seasonal rally brings it into line with goldís
seasonally-strong time of the year ending around this same time.

While gold tends
to drift sideways in the
summer doldrums,
silver tends to drift lower. This is an interesting commentary on
silver psychology. Silver traders only get excited, and buy
aggressively, when gold is rallying. And silver prices are more
heavily influenced by sentiment than any other commodity Iíve ever
analyzed. So in the summer when gold is merely consolidating,
enthusiasm for silver bleeds away faster than goldís. Without
strong gold to support it, silver selling sets in and drives its
price lower.

Like silver,
goldís best seasonal buying opportunity of the year occurs in late
August. Late last July around this seasonal low I was predicting
the first-ever
decisive breakout above $1000 in gold. At the time most gold
analysts, caught up in the depressing late-summer psychology, were
predicting lower gold prices. I got plenty of flak for such
a contrarian outlook, but the seasonals held true. Without a doubt,
the best seasonal time of the year to buy gold, silver, and
precious-metals stocks is late summer.

Gold tends to
rally sharply in mid-September, its fastest seasonal gains of the
year as Asian-harvest buying and festival seasons quickly ramp up
global gold demand. Silver mirrors this sharp mid-September rally
perfectly. And provocatively after that October is a lot like
March, with gold retreating considerably yet silver largely holding
its own in a consolidation. Apparently the residual excitement from
the sharp September rally persists long enough to keep traders from
selling silver aggressively in October.

Gold then rallies
sharply in November, its 2nd best month of the year after
September. Silver dutifully follows it higher, amplifying its
gains. And while the silver chart above includes the massive 12.7%
silver rally in November 2009,
the gold one
in my last essay (with data to July 2009) did not. Yet goldís
strong November seasonality was already well-established before
November 2009ís spectacular 12.6% gold gains. Again it makes a lot
of sense to pay attention to seasonality even though it is a
secondary driver.

Then in December,
a disconnect develops. While gold tends to rally strongly
throughout the month, silver tends to correct sharply. Although
some of this discrepancy is attributable to the fact that my last
gold seasonals analysis didnít yet include December 2009ís
correction, I suspect there is more to it than that. In December
2006, for example, gold merely fell 1.7% while silver plunged 8.9%.
If this seasonal anomaly persists, Iíll attempt to explore it deeper
in a future silver seasonals essay.

There are a couple
more interesting observations on silver seasonality versus gold
seasonality. First, the 2008 stock panicís impact on silver is far
more muted than I expected. Very provocatively, the general stock
markets often prove a greater influence over silver sentiment than
gold in particularly volatile times. If the S&P 500 (SPX) is
falling fast, it scares speculators everywhere including silver
traders. So they start ignoring gold and instead grow fixated on
the stock markets.

In less than 4
weeks in October 2008, the SPX plummeted 27.1% in the first
full-blown stock panic
since 1907.
While gold got hit too over this panic span, down 15.1%, silver took
it exceptionally hard with a 24.5% loss. This is a huge decline
over 19 trading days even for a hyper-volatile speculation like
silver. Yet if you examine October in this silver seasonals chart,
that panic decline isnít even detectable. It has effectively been
averaged out by gains in other Octobers.

Second, on average
in this bull silver has ended the year at an indexed level of only
114.2, up 14.2% annually. Meanwhile in my August gold-seasonals
analysis, gold finished its years at 113.4, up 13.4%. And if the
rest of 2009 was added to this earlier dataset, this number would be
even higher. Silver traders tolerate silverís extreme volatility
because it tends to amplify goldís moves higher. But seasonally,
this hasnít been the case so far.

Most silver
traders forget that historically silver has not tended to
outperform gold
dramatically until the very ends of their secular bulls.
Between 1976 and mid-1979 before the famous gold/silver
superspike, gold was up 200% to silverís 154%. Silver didnít exceed
goldís gains until the final 6 months of that storied bull
move. As the average annual seasonal gains in todayís bull reveal,
silver has not dramatically outpaced gold for most of this bull
either.

Within this gold
bullís best span to date between April 2001 and December 2009, it
was up 374%. Over this same span, silver was only up 348%. So
realize that gaming silver not only takes nerves of steel to weather
its extreme volatility, but it takes the patience of Job as well.
Silverís gains will probably easily eclipse goldís before todayís
bulls end, but they may very well only pace gold until near the
end. For some investors, silverís considerably greater risk than
gold just isnít worth the angst silverís wild volatility creates.

This final chart
looks at silverís seasonality on a calendar-month basis. Silver is
individually indexed to 100 in each month, and then each calendar
monthís indexes across every year are all averaged together. This
perspective adds additional insights into silverís intra-month
seasonals that arenít readily evident in the first chart. Once
again the small inset chart shows the full range of the
standard-deviation bands.

Silverís best
months seasonally are November, January, February, and May. These
are similar to
goldís of September, November, December, and May. On average in
these hot months for silver during its autumn and winter seasonal
rallies, 4% to 5% gains can be expected. If you want to trade
silver-related positions within calendar months instead of waiting
for the seasonally-optimal times within a year, this chart is
useful.

For any given
month, the best time to add new long positions is at silver
seasonalsí lowest levels. And of course the opposite is also true,
the best time to sell positions and realize profits is when the
seasonals are the highest. In January for example, the seasonal
averages favor adding longs early in the month if you want to deploy
new capital. But if you want to take profits that month, later on
is a higher-probability time to catch seasonally-stronger silver
prices.

While silver bull
seasonals are interesting, and useful, a huge caveat applies as in
all seasonal analysis. Seasonals are merely secondary
drivers of prices, tailwinds or headwinds. Far more important for
silverís near-term fortunes at any time are its prevailing technical
and sentiment situation. If silver is seriously overbought, and
greed reigns supreme, it is likely due for an imminent correction no
matter how bullish its seasonals happen to be. And if it is deeply
oversold and drenched in fear, it will probably rally sharply no
matter how bearish its seasonals are.

So donít
overestimate the importance of seasonals in your own trading. Look
to technicals and sentiment first, and only then consider whether
seasonals are likely to amplify or retard the prevailing short-term
trend. Profitable trading requires investors and speculators to
carefully consider and process a broad array of often-conflicting
information before determining the highest-probability-for-success
course of action. Within this weighing, seasonal influences cannot
override significant technical and sentiment levels.

At Zeal we study
the financial markets relentlessly, with the explicit mission of
uncovering high-potential-for-success trading opportunities for us
and our subscribers. We analyze many markets including silver from
all kinds of different fundamental, technical, and sentimental
angles. Then we integrate all of this into coherent and actionable
analysis shared with our subscribers via
acclaimed
newsletters. You can grow your knowledge of the markets and
their impact on silver and silver stocks, and greatly increase your
odds for trading success, by
subscribing today.

The bottom line is
silver definitely has strong seasonal tendencies. While they mirror
goldís strategically as expected, since gold action drives
silver-trader sentiment, they also differ from goldís tactically at
times. Silverís best odds for rallying are in autumn and winter,
when its strongest seasonal rallies unfold. Its weakest behavior
occurs in the summer doldrums, the end of which are the best time to
buy silver and silver stocks.

But it is always
crucial to remember that seasonality is a secondary driver at best.
The tailwinds and headwinds seasonal tendencies create can be easily
overcome by sufficiently-overextended technicals and sentiment.
Silver seasonality is always worth considering when making
silver-related trading decisions, but it must be relegated to the
smaller peripheral role it deserves.